IRAQ: ALTERNATIVE TRADE ROUTES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP06T00412R000201030001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 21, 2016
• Document Release Date: September 2, 2008
• Sequence Number: 1
• Publication Date: September 1, 1982
• Content Type: REPORT

h--- vor?y
Trade Routes
Iraq: Alternative
An Intelligence Assessment
State Dept. review completed
Secret
NESA 82-10508
September 1982
Intelligence
Directorate of Secret
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244
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Directorate of Secret
Intelligence
Trade Routes
Iraq: Alternative
This assessment was prepared by
the Office of Near East-South AsiaAna yyssis.
Comments and queries are welcome and may be
addressed to the Chief, Persian Gulf Division, NESA,
This paper has been coordinated with the
Directorate of Operations and with the National
Intelligence Council
Secret
NESA 82-10508
September 1982
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Secret
25X1
Iraq now depends on land routes through Kuwait, Saudi Arabia, Jordan,
and Turkey for all its imports. These routes were used even before the war
because Iraq's Gulf ports were overburdened by soaring imports for Iraq's
ambitious development program. 25X1
Iraq: Alternat've
Trade Routes
Key Judgments The vulnerability of Iraq's trade routes to disruption poses a fundamental
Information available strategic problem that is largely beyond Baghdad's control. Use of the
as of 13 August 1982 Persian Gulf ports hinges on relations with Iran, and alternative overland
was used in this report. routes depend on the good will of Iraq's neighbors. The war with Iran has
graphically underscored Iraq's need for alternative trade routes:
? At the outbreak of hostilities, Iran closed Iraq's Persian Gulf routes, the
Shatt al Arab, and Iraq's oil export terminals in the Gulf.
? In April 1982, Syria, allied with Iran, closed its borders with Iraq and
with Jordan to Iraq-bound cargo. More important was the fact that
Damascus closed the pipeline carrying Iraq's oil across Syria to the
Mediterranean, a measure Damascus had taken several times in the past.
Syria's closing of its border with Iraq has not substantially affected Iraqi
imports; the relatively small volume of traffic that came through Syria is
now moving through the ports of Iraq's other neighbors. Syria's closing of
the pipeline, however, has seriously hurt Iraq's ability to export oil and earn
foreign exchange. Iraq's crude exports are now restricted solely to the
pipeline through Turkey. This pipeline has a capacity of only about
700,000 barrels day. Before the war, Iraq exported over 3 million
barrels per day. [77 25X1
The Iranian invasion has reduced the volume of Iraqi freight transiting the
key trade route linking Basrah with Kuwait and the Saudi port of
Dammam. Shippers concerned about the proximity of the route to the war
zone have stopped accepting Iraqi cargoes. An Iranian breakthrough to the
Shatt al Arab would threaten to close this route to all Iraq-bound traffic.
This outcome would increase the likelihood of major supply breakdowns as
Iraq attempted to divert shipments to already overburdened alternative
routes. The Kuwait link has handled about one-third of Iraq's imports and
most of the Soviet military equipment bound for Iraq.
iii Secret
NESA 82-10508
September 1982
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Iraq now depends on loans from the Gulf Arabs to help finance the war and
imports. Gulf oil states have contributed at least $20 billion to Iraq since
the war with Iran began and have agreed to make up most of the loss in oil
earnings of $16 million per day resulting from the Syrian pipeline closure.
We believe these states will provide additional aid to Iraq, although each
has financial problems of its own because of the weak world oil market.
Most of the burden will fall on Saudi Arabia, but the Gulf nations together
will not meet all of Baghdad's aid requests.
Iraqi President Saddam Husayn, therefore, will have to introduce more
austerity measures this year, imposing some discomfort on the populace.
Baghdad already has had to draw down its foreign exchange reserves by
about $5 billion this year-to about $15 billion-to avoid major cuts in im-
ports.
Iraq cannot quickly revert to its prewar trade pattern when hostilities
cease. Repairs to port facilities will take at least a year to complete, and re-
building the oil terminals will take even longer once Iran permits Iraq to
reopen its Persian Gulf approaches. Longstanding territorial disputes will
keep tensions high and will increase the likelihood of recurring incidents
that will complicate Baghdad's attempt to resume trading through the
Gulf
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Iraq: Alternative
Trade Routes
Prewar Trade Patterns
The rapid rise in Iraqi imports to support military and
economic modernization in the 1970s put a tremen-
dous strain on the domestic transportation system.
Between 1976 and 1980, imports more than dou-
bled-to $13 billion a year-as Baghdad bought new
equipment for its armed forces and inaugurated major
25X1 development projects.
Because Iraq is a net importer of products in virtually
every major trade category, alternative transportation
links are critical to its economic well-being. Manufac-
tured goods head the list, but consumer imports also
jumped sharply as President Saddam Husayn sought
to solidify the popularity and legitimacy of his regime.
Inefficiencies and bureaucratic bungling have gener-
ally negated Iraq's agricultural potential, requiring
Iraq to buy large quantities of food, mostly grain.
During the 1980/81 marketing year, about 55 per-
cent-2.3 million tons-of Iraq's grain needs were
imported.
Iraq's only major ports-at Basrah and Umm Qasr on
the Persian Gulf-were unprepared to handle this
influx of cargo. About 80 percent of Iraq's total
imports funnelled through these ports. To relieve the
congestion, Iraq in the late 1970s devised alternative
routes through neighboring countries:
? An agreement was signed with Kuwait in 1978 that
allowed Iraq-bound cargo to be unloaded at
Shuwaikh, Kuwait's largest general cargo port.
? Iraq has transshipped goods through the port of
Aqaba in Jordan since the late 1970s. In May 1980
Baghdad provided Amman with a package of loans
for port and road expansion.
? Iraq used the Turkish ports at Izmir, Mersin, and
Iskenderun as transit points for its goods.
Even so, overcrowding in Iraq's Gulf ports did not
slacken as imports rose to meet Iraq's development
goals. in 1980 port
delays stretched at times to more than 100 days: as
many as 150 ships waited to unload cargo
Oil has accounted for virtually all of Iraq's exports.
Before the war Iraq exported about two-thirds of its
oil from its two offshore oil export terminals at Khor
al Amaya and Mina al Bakr on the Persian Gulf. The
remaining crude was shipped through the Iraq-
Turkey pipeline terminating at Ceyhan and the Ban-
ias spur of the Iraq-Mediterranean pipeline across
Syria. 25X1
Developments Since the War
All Iraq's ports have been closed by the war, and the
principal road link to Kuwait's ports is jeopardized by
the Iranian offensive.
Iranian airstrikes and commando raids in October- 25X1
November 1980 virtually destroyed the oil loading
facilities at Khor al Amaya and Mina al Bakr, which
had a combined export capacity of about 3.2 million
barrels per day. The principal port at Basrah has so
far suffered little physical damage, but its approaches
are blocked by sunken merchant vessels and by heavy
silting in the absence of dredging. Foreign shippers
will not risk the trip through the Shatt al Arab that
separates the war zone between the two countries.
Harbor facilities at Umm Qasr are largely unscathed,
though this port is also closed because of its proximity
to the war zone. 25X1
To compensate, Iraq turned even more to its neigh-
bors-Jordan, Kuwait, Turkey, Saudi Arabia, and 25X1
Syria
~ve estimate Iraq transshipped roughly 12-14 25X1
million tons of cargo through these countries' ports
last year, compared with about 2 million tons in 1980.
25X1
Iraq has experienced congestion and overland delays
but only minor shortages. The volume of imports in
1981 increased about 50 percent over the 1980 level.
Enough military hardware also got through to keep
the Iraqi Army better supplied than its Iranian
opponents. 25X1
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Major Transportation Routes into Iraq Figure 1
Mafr'a'tq"--
Az Zarq
MMAN
Iraq-Saudi Ar ya
Neutral Zone
o}utu~re lig-e _ '~
Persian
Gulf
Tanker
terminal
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hor a/-Amaya
WIIAI.~
S uwaiktY.#
Kuwaif o ne al-Baler
Chuoiha
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The most serious consequence of the Gulf closure was
the reduction in oil exports which, in turn, cut Iraqi
revenue earnings last year by more than half com-
pared with 1980.' Iraq could not compensate for the
loss of its Persian Gulf oil terminals. Iraq was limited
to oil exports through the Mediterranean pipelines;
the pipelines were closed periodically by Iranian
airstrikes early in the war. By the spring of 1981,
Baghdad was able to export oil on a regular basis
through the Iraq-Mediterranean pipeline across Syria
and the Turkish pipeline. In November 1981 Damas-
cus permitted Baghdad to ship oil through the Tripoli
spur of this line across Syria, raising total Iraqi oil
shipments to 1.4 million barrels per day by the end of
1981. Nevertheless, Iraqi oil exports averaged only
about 900,000 barrels per day in 1981, considerably
below the 2.3 million barrels per day averaged in
25X1 1980
Oil revenues of about $10 billion in 1981 covered only
about half of Iraq's import bill. Other foreign ex-
change expenses, including payments to foreign work-
ers in Iraq, pushed the current account into a deficit
of over $17 billion. To finance the shortfall-and slow
the drawdown of foreign exchange reserves-Iraq
borrowed about $15 billion from Saudi Arabia, Ku-
wait, Qatar, and the UAE from late 1980 to Decem-
ber 1981, The
loans have so far enabled Iraq to prosecute the war
without exhausting reserves or slashing imports of
consumer goods
By early 1982, however, financial pressures were
mounting, and Saddam ordered across-the-board cuts
in government spending. Most new projects have been
canceled, postponed, or interrupted. The regime tem-
porarily suspended consumer goods imports for state-
owned shops. Shortages are chronic for almost all
nonessential consumer items, and the government
apparently is allowing prices to escalate above man-
dated levels. Priority has been given to war expendi-
tures, essential consumer goods, and projects associat-
ed with the Nonaligned Summit that was to be held in
Baghdad in September. The meeting now is scheduled
for a later date in New Delhi because of the war. F_
The Iraqi economic predicament worsened in April
1982 when Syria closed its borders with Iraq and with
Jordan to shipments destined for Iraq and again shut
down the pipeline to Banias and Tripoli. At the time,
the pipeline was carrying about 45 percent of Iraq's
oil exports. Damascus intended these moves to put
economic pressure on Iraq and to support Iran's war
aim of bringing down Saddam Husayn
We estimate the closure of the Syrian pipeline will 25X1
cost Iraq $6 billion in lost oil revenues in 1982,
lowering projected export revenues for the year to 25X1
about $9 billion-about one-third the prewar level.
Iraq's only remaining oil export route, the 700,000-
barrel-per-day pipeline across Turkey, currently is
operating near capacity. But this line is highly vulner-
able to sabotage and already has been damaged
several times, most recently in March by Kurdish
rebels from Iraq. 25X1
We do not believe the shutdown of Iraq's land transit
routes across Syria will seriously impede the flow of
imports into Iraq. Baghdad had already discouraged
shipments through Syrian ports because of political
feuding between the two countries.) 25X1
As a result we estimate that Iraq's import bill will be
nearly $21 billion this year. According to the US
Interests Section in Baghdad the war is costing Irag25X1
about $1 billion per month,,
Mostly because oil revenues will be only half of
import expenditures, Iraq will face the prospect of a
foreign exchange shortfall of about $11 billion in
1982. To head off major import cuts, Baghdad al-
ready has had to draw down its foreign exchange
reserves by as much as $5 billion according to our
estimate. The Gulf states have provided about $5
billion in aid so far this year,
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Table 1
Routes Used for Iraqi Imports
Persian Gulf ports
1,400
6,200
6-8,000 c
0
0
Basrah
1,200 d
5,200
NA
0
0
Umm Qasr
200 d
1,000
NA
0
0
2,000
2,000
12-14,500
12,000
Kuwait
NA
NA
3-4,000
3,000
Jordan
NA
900
3-3,500
4,000
Turkey
NA
3-3,500
3,500
a Estimated.
b Projected.
Most deliveries for the year probably cleared the ports before the
war started in 1980.
d Estimated, based on ship arrivals.
Without additional Gulf state assistance,
Iraq will be forced to reduce reserves further. if it is to
maintain its present import level. Reserves will now
cover the equivalent of less than nine months of
imports at the current rate.
25X1
Saddam is preparing the populace for additional belt
tightening. New measures are likely to include more
contract cancellations and restrictions on imports of
luxury goods. A continued erosion of the standard of
living will weaken Saddam's popularity, already test-
ed by the stalemate on the battlefield.
Iraq's Key Entrepots
Kuwait has become the main transit point for Iraqi
goods. The ports of Shuaiba and Shuwaikh handled
an estimated 3-4 million tons of Iraqi goods in 1981.
Only about 1 million tons of Iraqi goods were expect-
ed to transit this port before the war. According to US
Embassy reporting, Kuwait dedicated one-third of its
33 available berths for ships carrying Iraqi cargo.
Even so, the harbors were filled with ships waiting in
queue up to 60 days.
months, with an average of only 15 ships waiting to be
unloaded. The director attributed the improvement to
Iraq's import cutbacks and to an increase in shipping
through Jubail and Dammam in Saudi Arabia, where
clearing procedures are easier. The Kuwaiti and
Saudi ports handle over one-third of Iraq's imports,
including most Soviet military equipment.
The shipping trade press reports traffic has been
reduced even further in recent weeks as the Iranian
invasion apparently has caused some shippers to
divert their cargoes from Kuwait. Iran has warned
shippers carrying Iraqi goods to stay away from
Kuwait, but so far Kuwaiti ports have not been
attacked. Most of the diverted ships are now en route
to Jordan's port of Aqaba; as a result, the number of
ships calling at Aqaba reportedly has doubled since
mid-June
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Figure 2. The pier at Shuaiba,
Kuwait with military equip-
ment, including the SA-6,
awaiting transport to Iraq.
Since the war began, Saudi Arabia has permitted Iraq
to transship goods through its ports-principally
Dammam on the Persian Gulf and Qadhima on the
Red Sea. With up to 15 percent of its capacity
devoted to Iraqi cargo, Saudi Arabia's second-largest
port of Dammam has become a major transit point for
Iraq's imports. The port's efficiency also has attracted
Iraqi shipping, according to the press monitoring the
region. Cargo is unloaded in no more than four days,
and the Saudis impose no additional restrictions on
goods destined for Baghdad. Qadhima is used to a
lesser extent, mostly for military equipment
The Saudis have substantially expanded their capabil-
ity to haul Iraqi freight on the overland leg of the
journey. The press reports that at least 100 companies
ranging in size from modern, integrated shippers to
single-truck operators transport Iraqi cargo. High
truck rates-about twice the charge to carry the same
load an equivalent distance within Saudi Arabia -
25X1 provided the incentive for truckers.
After a booming transit trade in 1981, truck volume
through Dammam began to diminish early this year,
probably because of Iraq's decision to slow its s end-
ing abroad.
The Iranian advance on Basrah has sharply curtailed
overland traffic carrying Iraqi goods from Dammam.
The major trucking firms have stopped accepting
Iraqi cargo, according to the press. The smaller local
companies still are willing to risk the trip but are
encountering lengthy delays at the border. Trade
through Qadhima, which is used in part to take
pressure off Aqaba, probably will continue apace
because the port also takes shipping diverted from
Syria and Dammam.
Jordan is Iraq's staunchest supporter in its war with
Iran. King Hussein views Iraq as an important ally in
protecting Arab interests in the Persian Gulf region.
Iraq is a major market for Jordanian exports and has,
in the past, provided loans for many development
projects in Jordan 25X1
Jordan's Red Sea port of Aqaba was nearly swamped
by the initial flood of Iraqi cargo last year, when as
many as 100 ships waited in the queue. Congestion,
although still a problem, has eased considerably as a
result of completion of port expansion begun before
the war, new handling equipment, and round-the- 25X1
clock unloading schedules. At peak capacity, the port
can handle 6-8 million tons of cargo annuallyF_
With the slowdown in traffic through Kuwait and
Saudi Arabia, Aqaba is becoming Iraq's most impor-
tant gateway for trade. This year as many as 4 million
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Figure 3. The harbor at Aqaba.
Jordan filled with cargo ships,
most of them bound for Iraq.
tons of cargo-one-third of Iraq's projected imports-
are likely to be unloaded at the port. This volume
would represent about half the cargo port officials
expect Aqaba to handle this year
Cargo unloaded at Aqaba must be shipped by truck to
Iraq. The Jordanian road network can carry the
volume of goods leaving Aqaba, although the routes
are tortuous; the 1,200-kilometer trip from Aqaba to
Baghdad takes several days. The railroad that serves
the port does not connect Jordan with Iraq, and cargo
must be unloaded at Amman or Al Mafraq for
shipment by road to Iraq
To help eliminate a truck shortage, the media report-
ed that King Hussein initially commandeered all
private trucks in the country and placed top priority
on the shipment of Iraqi cargo out of Aqaba. The
government also permitted foreign carriers to trans-
port Iraq's goods. An Iraqi-Jordanian joint venture
purchased 700 trucks from West Germany last year
and wants to double its fleet by the end of 1982. The
partnership plans to sign contracts later this year for
delivery of the additional trailers. When its truck fleet
reaches full strength, the joint venture will be able to
transport over 3 million tons of Iraqi cargo annually.
Most of the freight for Iraq that had been scheduled
to transit Syria is being diverted to Aqaba for over-
land shipment, as are the diversions from Kuwait. We
judge that the Jordanian port and land transport
facilities probably can manage the additional load.
Moreover, congestion along the Jordanian route is
likely to be ameliorated later this year as Iraq cuts
imports and directs some shipping to Turkey
The routes through Turkey are less important to Iraq
than those across Kuwait or Jordan. They carry
mostly commercial goods from Europe.
Iraq is Turkey's main Middle
Eastern customer and supplies the bulk of Turkey's
petroleum needs. Baghdad signed an agreement in
August 1981 that guarantees Ankara 170,000 barrels
per day of the oil that flows through the pipeline
transiting Turkey.
According to press :reports, Turkey's Mediterranean
and Black Sea ports are coping well with the sharp
increases in Iraqi tonnage. But because of limited
storage space., port officials require that onward trans-
portation be guaranteed to immediately clear the
ports. To handle the large volume of goods, Iraq has
had to contract with drivers from Bulgaria and Hun-
gary who have provided most of the 3,000 trucks that
make the overland journey.
25X1
25X1
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The crush of Iraq-bound traffic has caused chronic
delays on the overland journey; backups at the Bul-
garia-Turkey border can last two to three days, and
trucks have lined up for several kilometers at the Iraq-
Turkey crossing. Fuel shortages, infrequent repair
facilities, and weather problems add to the difficulties
25X1 and costs
Moreover, the trip from Turkey to Baghdad is haz-
ardous; security along the route is sporadic and repair
facilities sparse. In the north, Kurdish insurgents have
attacked truck convoys-most recently last Septem-
ber when 14 Turkish trucks were hijacked. Use of the
road is restricted at night.
Rail transportation between Turkey and Iraq is not
well developed. Even before Syria closed its border
with Iraq last April, a shortage of rail capacity forced
the temporary closing of the Turkish-Syrian border to
Iraq-bound traffic. The railroad was not popular with
shippers, probably because the freight still had to be
distributed after it reached the railhead in Baghdad.
The two countries have discussed building a more
direct rail line that avoids Syria, but the project has
been delayed because of Baghdad's inability to fi-
nance construction.
Since Damascus closed its borders with Iraq, Turkish
shipping and trucking officials report that the port at
Iskenderun has been receiving Iraqi cargo shunted
from the Syrian port at Latakia. Goods at Mersin
originally manifested for shipment through Syria-as
well as cargo caught at the railcrossings-are now
being loaded on trucks for the trip to Iraq. Ankara
earlier had promised Baghdad that it would maintain
the 3-million-ton-per-year pace for Iraqi goods tran-
25X1 siting Turkish ports.
Turkish truckers should have little trouble in handling
the extra load; the only apparent serious capacity
problem is a shortage of refrigerated trucks. Truck
traffic to Iraq, especially from Europe, has been
declining since the peak in late 1981, reflecting Iraqi
import cutbacks.
The boycott by Turkish truck drivers last month poses
a serious threat for fuel shipments to Iraq. According
to the press, hundreds of tank truck drivers are
refusing to haul petroleum products to Iraq from the
refinery at Mersin until several demands, including
higher wages, are met. The Turkish refinery has the
capacity to make up an important part of Iraqi
production lost to the war 125X1
Expanding Alternative Routes
Iraq is pressing ahead with the expansion of most of
its overland import routes despite the cost and the
war. To give its overland transportation system added
flexibility, Iraq is building a $3 billion, 1,200-km road
network that will connect Baghdad with the borders 25X1
of Kuwait, Jordan, and Syria. Always uneasy about
the bottleneck on the Persian Gulf, Ira began design
work on the expressway route in 1979
Last September
the Iraqis let the last of the contracts for the construc-
tion of the network.
Baghdad also has a massive railroad construction
program on the drawing boards. The plan includes a 25X1
378-km rail link from Baghdad to Hussaba on the
Syrian border. Work on the $1.2 billion line so far is
on schedule, In
addition, a feasibility study has been completed on a
railroad that would link Umm Qasr with Shuaiba and
Shuwaikh via a proposed Kuwaiti. north-south line.
Baghdad also plans a major increase in the capacity at25X1
Umm Qasr, which will make it Iraq's largest port.n
war, the project almost certainly will be delayed 25X1
beyond its scheduled completion date of 1985. As of 25X1
August 1981 Umm Qasr had eight berths in operation
and 12 under construction. 25X1
Countries transshipping Iraqi cargo have their own
expansion plans. For example, Kuwait has formed a
high-level ministerial committee to explore ways to
ease the congestion at its ports caused by Iraq-bound
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Table 2
Routes Used for Iraqi Oil Exports
1,900
700
1,200
700
Tripoli branch
500
0
0
NEGL
0
Iraq-Turkey pipeline
Of
650
525
600
700
a Estimated.
b Projected.
First-quarter shipments through the Iraq-Mediterranean pipeline
raise average total exports for the year to 800,000 barrels per day.
d Al Fao, Khor aI-Amaya, and Mina al-Bakr.
e Pipeline closed in April 1982.
r Pipeline completed in 1977.
shipments. So far, the Kuwaitis are planning a $400-
450 million berth expansion at Shuwaikh. Additional
berths are under construction at Shuaiba and are
expected to be completed as early as this year.
To enlarge its shipping routes Jordan is:
? Seeking Western contractors for the extension and
reconstruction of the Aqaba-Amman rail line to
connect with the Iraqi border.
? Constructing a new 300-km highway from Aqaba to
Azrak that will shorten the route to Iraq.
? Expanding the Aqaba port facilities, which will be
ready by mid-1983.
If Syria keeps its border with Iraq closed for an
extended period, Jordan probably will speed develop-
ment of these projects.
Jordan, Iraq, Saudi Arabia, and Lebanon are partici-
pating in plans to construct a factory to build rolling
stock for the rail network. Iraq is funding the highway
project, the railroad, and most of the railcar plant.
Oil Pipelines
Iraq's need for alternative oil export routes has been
made manifest by the war with Iran. Without such
alternatives, Iran has a stranglehold over Iraq's econ-
omy. Baghdad is proceeding with plans to increase the
capacity of the Turkish pipeline to help counter the
loss of the oil route across Syria. Iraq intends to raise
the volume of the line b 200 000 barrels per da -to
900,000 barrels per day
25X1
Install- 25X1
ing the pumps probably would take about a year,
Baghdad is also negotiating with Riyadh for the
construction of a 1.6-million-barrel-per-day pipeline
to ship Iraqi oil from the Basrah oilfields to a terminal
near Yanbu on the Red Sea.
a feasibility study has been prepared,
Even if the pipeline were built, it would not provide
enough additional capacity to permit Iraq to offset the
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loss of its Persian Gulf terminals. Moreover, the line
would provide Iraq no near-term alternative since
construction would take about four years. Iraq also is
considering seeking new pipelines across Jordan and
Kuwait
Outlook
Iraq will be forced to rely on its neighbors' trade
routes for at least a year even if the war is quickly
settled and Iraqi shipping is permitted to use the
Shatt al Arab. Although port facilities are relatively
undamaged, dredging operations probably will take
up to a year to complete, assuming the men and
necessary equipment are available and Iraq gives top
priority to the project
If Iran achieved a military breakthrough on the
Basrah front, Iraq's major supply link to Kuwait and
the Saudi port at Dammam would be threatened as
would the flow of Iraqi economic and military im-
ports. The only other feasible route through Kuwait-
a service road for oil facilities-could barely handle
an estimated one-third to one-half the volume of the
main highway, based on analysis of the road surface
and assuming a heavy maintenance commitment.
Adding the remaining tonnage to the Red Sea ports
and Turkish routes would increase the risk of supply
breakdowns along these already congested transit
routes.
Even if Iran withdraws from the Shatt al Arab, Iraq
may not be able to use its Gulf ports until the
boundary dispute over the waterway is fully settled.
This probably would require a peace accord that
almost certainly would involve protracted negotia-
tions. Meanwhile, Iraq probably would be unable to
begin reconstructing its ports or clearing the Shatt.
Even a settlement may not guarantee Iraq easy access
to its ports; an agreement that called for joint moni-
toring of the Shatt, for example, would create the
potential for disputes over use of the approach. In the
meantime, Iraqi oil exports are unlikely to exceed
700,000 barrels per day. As long as Iran continues to
provide crude to Syria, the Syrians apparently have
little incentive to reopen the pipeline from Iraq.
When hostilities cease, Baghdad is ready to install at
least four single-point mooring systems (SPMs) in the
Gulf. Installation of the SPMs should take four to six
months. Once installed, Iraq's Persian Gulf export
capacity would be 1.5-2 million barrels per day,
compared to the 3.2 million barrels per day which was
the prewar capacity of the two terminals destroyed in
the war. The Iraq National Oil Company will use the
SPMs at least until the permanent terminals can be
reconstructed, a job expected to take up to two years.
25X1
In the meantime economic pressures on Iraq will
increasc. The regime may well have to cut consumer
imports further this year, exacerbating the rapid rise
in prices. Growing dissatisfaction over shortages and
reduced standards of living in Iraq probably will erode
Saddam's popularity. 25X1
The Gulf states, along with Turkey and Jordan, will
try-short of military intervention-to salvage the
Saddam regime or at least a government not subservi-
ent to Tehran. Above all, the Gulf states fear the
emergence of a radical power bloc in the Middle East
linked by Islamic fundamentalism. But because of the
weak oil market, foreign earnings for Kuwait, the
UAE, and Qatar will barely cover their own expendi-
tures this year, and Saudi Arabia will have its
smallest current account surplus since 1978. Thus,
they will want to hold down additional outlays to
Baghdad. Some will also want to hedge their bets 25X1
against an Iranian victory
Long-Term Transport Outlook
When reopened, Baghdad's Gulf ports will again
become its key import terminals because they are less
costly than the alternative routes and give the Iraqis
more control over their trade. The alternative routes
will supplement the Persian Gulf ports and maintain
Baghdad's options. We believe most of the countries
transshipping Iraqi goods will continue to do so as
long as a friendly government is in power in Baghdad.
25X1
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To handle the increased import volumes associated
with its development program, Baghdad will have to
expand its two main ports further. Iraq's short coast-
line does not offer much room for substantial develop-
ment of new ports. The existing ports also serve as
Iraq's naval bases, a use that competes with handling
the import volumes Baghdad will need for reconstruc-
tion and development efforts.
Oil buyers in North America and the Far East will
continue to prefer deliveries from the Gulf for cost
reasons as long as security can be guaranteed. Iraqi
deliveries via the Turkish pipeline-and perhaps later
the Red sea-will be cheaper than the Persian Gulf-
Suez route only for European customers
Once the Persian Gulf terminals are repaired, Iraq's
ability to sell crude for the remainder of the 1980s
will not be constrained by its oil export capability.
Export capacity-including the pipelines-will be
over 5 million barrels per day. We believe Baghdad
probably will increase its oil productive capacity,
currently about 3.5 million barrels per day, to about
4-4.5 million barrels per day by the late 1980s, based
on prewar development plan
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Secret
Secret
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